Help with retirement accounts

[kanga1]

My parents owned a small business that I ran. We had a SIMPLE IRA set in place where each employee could use whichever financial institution they wanted to contribute and the company did a matching contribution. I was the "plan administrator" but I really had no clue what I was doing. My parents closed/sold the business in May. New company took over and they have a 401k available through Paychex Flex. Myself and the 2 other employees who had a SIMPLE IRA work for the new company. I have not signed up yet but plan to. I asked my financial advisor if I had to do anything to "close" the old SIMPLE plan and this was his response:

I would coordinate this with the administrator of the new company plan. It can be a bit complicated, and depending on how other employees have been participating you want to make sure you cross your T’s and Dot your I’s…..For your funds I think we can make them a regular IRA or you could roll to the new company plan. Let me know if I can help.

I asked the HR person of the new company what I should do and he did not know. 

So here are my 2 question......what should I do with my SIMPLE account? I currently have my SIMPLE plus a ROTH IRA. And I will be starting my 401k soon. And does anyone have any ideas what I should be doing to the old company's SIMPLE plan to "discontinue it"? There haven't been any contributions since May. 

[sicilygirl]

I don't understand the response from the financial advisor. Seems very nebulous, lol.

Terminating a Simple IRA is pretty easy. The employees have to be notified, as does the financial institution that manages the plan. They just need to know that contributions are being discontinued. Make sure your payroll provider, if you have one, knows this as well. You don't have to notify the IRS that you're terminating the plan though. Generally, simple IRAs cannot be terminated mid-year, but depending on how the sale of the business was structured and if the old business ceased to exist, that may not apply to you. Do you/does the business have a CPA? That's who I would direct these questions to. Ultimately, all you are doing as the plan administrator is making sure that the employer contributions stop. The rest is up to each employee since the accounts are owned by them.

For you personally, you can roll your Simple IRA over to a Traditional IRA or your new 401(k) without any tax consequences. You can also roll it into your existing Roth IRA, though you will be on the hook for the taxes in that case. Just as an FYI, if you take distributions from a Simple (even through a rollover) within 2 years of the first employer contribution, there is a 25% penalty. Assuming 2+ years have passed since your Simple was opened, you shouldn't have to worry about that though.

[kanga1]

Jun 29, 2021 18:29:13 GMT -5 sicilygirl said:

I don't understand the response from the financial advisor. Seems very nebulous, lol.

Terminating a Simple IRA is pretty easy. The employees have to be notified, as does the financial institution that manages the plan. They just need to know that contributions are being discontinued. Make sure your payroll provider, if you have one, knows this as well. You don't have to notify the IRS that you're terminating the plan though. Generally, simple IRAs cannot be terminated mid-year, but depending on how the sale of the business was structured and if the old business ceased to exist, that may not apply to you. Do you/does the business have a CPA? That's who I would direct these questions to. Ultimately, all you are doing as the plan administrator is making sure that the employer contributions stop. The rest is up to each employee since the accounts are owned by them.

For you personally, you can roll your Simple IRA over to a Traditional IRA or your new 401(k) without any tax consequences. You can also roll it into your existing Roth IRA, though you will be on the hook for the taxes in that case. Just as an FYI, if you take distributions from a Simple (even through a rollover) within 2 years of the first employer contribution, there is a 25% penalty. Assuming 2+ years have passed since your Simple was opened, you shouldn't have to worry about that though.

Great idea! Not sure why I didn't think about our CPA prior. He has been the only help I've gotten through this business transition. If you thought the answer from my financial advisor was nebulous you should have seen how my business attorney answered my questions on other topics 🤦‍♀️🤦‍♀️🤦‍♀️

[kanga1]

Jun 29, 2021 18:29:13 GMT -5 sicilygirl said:

I don't understand the response from the financial advisor. Seems very nebulous, lol.

Terminating a Simple IRA is pretty easy. The employees have to be notified, as does the financial institution that manages the plan. They just need to know that contributions are being discontinued. Make sure your payroll provider, if you have one, knows this as well. You don't have to notify the IRS that you're terminating the plan though. Generally, simple IRAs cannot be terminated mid-year, but depending on how the sale of the business was structured and if the old business ceased to exist, that may not apply to you. Do you/does the business have a CPA? That's who I would direct these questions to. Ultimately, all you are doing as the plan administrator is making sure that the employer contributions stop. The rest is up to each employee since the accounts are owned by them.

For you personally, you can roll your Simple IRA over to a Traditional IRA or your new 401(k) without any tax consequences. You can also roll it into your existing Roth IRA, though you will be on the hook for the taxes in that case. Just as an FYI, if you take distributions from a Simple (even through a rollover) within 2 years of the first employer contribution, there is a 25% penalty. Assuming 2+ years have passed since your Simple was opened, you shouldn't have to worry about that though.

Great idea! Not sure why I didn't think about our CPA prior. He has been the only help I've gotten through this business transition. If you thought the answer from my financial advisor was nebulous you should have seen how my business attorney answered my questions on other topics 🤦‍♀️🤦‍♀️🤦‍♀️